Commercial Drone Markets: 2014 Year in Review

Judging by the headlines, 2014 turned out to be the year for drones. I referenced in Tweets a total of 503 articles with the word ‘drones’ in the headline last year. A Google search brings up about 61.4 million results referring to ‘drones.’ Granted, that search includes references to military and hobby drones, but it still delivers higher results than other years.

If the first theme of 2014 was the rise in popularity of drones, the second theme was how hamstrung the commercial markets are in the U.S. because of a lack of regulations. But there’s more going on than the buzz and frustration with FAA progress; in this post, I’ll review what I think were the five most significant commercial market trends for drones in 2014.

‘Drones’ Got Hyped

As mentioned, 2014 brought lots of hype about drones in the media, and investors can’t tell fact from fiction. Here’s one example where a writer and industry analyst asserts that the civilian commercial market for unmanned aircraft systems (UAS) will dwarf that of the military. But the evidence shows otherwise. My colleague Mitch Solomon summarizes the problem well in this article:

“Venture investors have a huge variety of questions about the commercial drone market, but two stand out in terms of their importance. The first is: what is hype and what is reality? Put another way, is this market really a big, high growth, high margin market? If you rely solely upon media hype and AUVSI

[Association of Unmanned Vehicle Systems International], your answer would be an unequivocal: yes, the commercial drone market is the biggest, highest growth, best new market opportunity to come along in decades (or maybe centuries…AUVSI shows the US commercial market at over $1 billion in the first year after regulations are approved by the FAA. (Really?!).”

Like Mitch, I’m not so quick to buy the media hype or AUVSI’s forecast (for more on that, see this article), and my market view is much more pragmatic and measured. Still, if tier-one venture investors are asking questions about the hype, then that is a good sign. It means that while there is interest in the space, investors will need to work smarter to make sure capital won’t be wasted chasing fictional opportunities.

Oil and Gas Inspections in the U.S. Got a Frivolous Beginning

While drone inspections of land-based refinery flare stacks have been permitted in other countries for some time, it wasn’t until June of this year that the FAA granted permission for the first commercial drone for this industry in the U.S. Problem is, it wasn’t for the same purpose. That permission went to oil company BP and drone manufacturer AeroVironment to fly aerial surveys of over Alaska’s North Slope.

The lack of real-world consequence of this permission is best stated in this article. Until June, the FAA has approved drones for public safety, such as police or firefighters, or for academic research, on a case-by-case basis. Most of those cases were for use cases similar to flare stack inspections (perch and stare) and were for small, versatile drones with relatively low-cost technology. But this was for an expensive 10-year-old military spec fixed-wing drone that has limited commercial viability. As the article states:

“The FAA is essentially using the military’s prior experience with this specific drone platform in place of the agency’s airworthiness certification requirements, so it is not an option for people hoping to use the newer drones being designed by high-tech startups that are not involved in military applications,” [Brendan] Schulman said. “It is a small step in the right direction but really only for companies who want to operate in very remote locations using military surplus equipment.”

Drone Cinematography Came Out of Shadows

As this research points out, filmmaking, video, and photography drones have flown commercially without FAA authorization for years now. It’s no surprise, then, that this is the biggest and most mature commercial market for drones. Notwithstanding, drone regulation was among many issues the Motion Picture Association of America (MPAA) lobbied on in 2012 and 2013, at a total cost of $4.11 million. The MPAA has been constantly appealing to the FAA to let them use smaller drones for film-making purposes. It seems that lobbying paid off. In September, the FAA granted regulatory exemptions to six TV and film production companies to operate drones on sets: Astraeus Aerial, Aerial MOB, HeliVideo Productions, Pictorvision, RC Pro Productions Consulting, and Snaproll Media.

There is a catch here. Operators are required to hold private pilot certificates. This has many scratching their heads. Why do commercial remote control operators need to learn how to land a Cessna when they’ve been operating these drones safely for years as ‘hobbyists’ without that requirement?

Agricultural Drones Got A Reality Check

A reality check is an assessment to determine if one’s circumstances or expectations conform to reality. This certainly is the case with the market for agricultural drones. It needed a reality check because of the hype created by AUVSI study titled The Economic Impact of Unmanned Aircraft Systems Integration in the United States. It claims precision agriculture and public safety will make up more than 90% of the market growth for unmanned aerial systems. The report confidently states, “…the commercial agriculture market is by far the largest segment, dwarfing all others.” To this day, that fiction gets repeated over and over again in the media.

The market potential for drones in precision agriculture needs vetting—see Film or Farm: Which is the Bigger Drone Market? – Part 2 for my thoughts on this. It’s not yet clear how a UAS can deliver more usable data to a farmer or provides a cost benefit over the existing image solutions available to them today. But don’t take my word for it–watch this video of Rory Paul at the 2014 sUSB Expo for his take on the misconceptions about this market.

The GIS Market Heats Up

Back in the spring, GIS software market leader Esri published this article about how drones greatly benefit the work of professional surveyors and mappers. Devon Humphrey states it clearly:

“Due to the unique flight characteristics of UAVs, the imagery is sharper and offers some unique advantages. This means that the camera captures high ground resolution on the order of two to five centimeters. In addition, because there is a large amount of overlap in the imagery, digital photogrammetric processing results in 3D point clouds of similar resolution. Turnaround time is a few hours, instead of days, weeks, or months in the case of traditional delivery times. The user also controls the process rather than working with an outside vendor or being stuck using “day-old donuts,” generic imagery that doesn’t meet the temporal requirements.”

He is not alone in that assessment. I think this market is heating up to become the second biggest commercial drone market behind aerial photography and cinema and ahead of precision agriculture. In a nutshell, I believe the GIS market will continue to grow rapidly because drones provide a technical advantage over incumbent aerial technology and incumbent technology costs more.

What should we expect in 2015?

A lot depends on the forthcoming small drone rule from the FAA. If it looks at all like the exemptions granted this year (which have onerous restrictions), then U.S. commercial market growth will be seriously hampered. This should be no surprise to anyone. Much has been written on how government regulations hinder economic growth (for example here and here). Still, in other countries with smarter regulations, expect these and other markets to continue to flourish and those over here will be looking at the success stories with envy.

You can find more insights from 2014 on these SlideShare presentations. I would love to hear your thoughts about the commercial drone markets. Feel free to comment or write me at colin@droneanalyst.com.

I also think that it’s going to be very hard to put GIS in a bucket of it’s own re: sUAS. Already in agriculture, these folks are using GIS to perform spatial analysis in the form of rate maps. Cadastral mapping and survey are only a small facet of the technology as a whole. So yeah, if GIS is the “big market”, it’s only because GIS is ubiquitous.

Fantastic summary, btw!

Colin Snow
December 31, 2014 at 10:24 AM

Thanks Beau. Rory has more to say about the ag market on his blog at http://aerialfarmer.blogspot.com/. I agree that GIS is ubiquitous as an application but I delineate the market as the dedicated surveying and mapping businesses like Merrick, SAM, and Towell to name a few.

What about military drones? 2015 could bring us a huge step forward. Many countries are building their drone armies. Maybe first battle between drones this year?

Colin Snow
January 2, 2015 at 10:30 AM

We don’t cover the military market – only the civilian commercial markets.

Roy
January 25, 2015 at 3:48 AM

I’m surprise to see that home/real-estate security is not one of the key markets. How come? Provider a wider view point, replacing the security guard “patrol”, etc. Seems as an obvious use case where people already pay a lot of $$ for top security systems.

[…] year at this time, I reflected back on the news and trends of the commercial drone markets of 2014 and wrote about the mixed state of affairs in the U.S. Back then, drones got considerable media […]

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